I have been recommending China Natural Gas (OTC:CHNG) for a while. I recommend the stock for 2 reasons:
- The company has great business fundamental and good long-term potential growth. Recently, CHNG has acquired another company for growth. The fundamental of the business continues to grow.
- The company is applying for NASDAQ listing, which may enhance the value of the stock. The reason is that mutual funds generally cannot own stocks that are listed in bulletin board. So, by listing on NASDAQ can attract some institutional buying. However, this is not the main reason to buy this stock. You always buy stock based on good potential and has sound fundamental.
Lately, the stock has been traded down because the company missed its deadline for listing. A lot of investors bought the stock in anticipation of the institutional buying driving up the stock price. Now, the same investors sold the stock because CHNG still has not been listed on NASDAQ.
CNHG is actually taking steps to get listed. The company plans to implement a 2:1 reverse stock split to step up the stock price. I believe the stock needs to be above $5 before the company can be listed. With a 2:1 reverse stock split, the stock price of CHNG will be doubled artificially, while your holdings will be cut in half. If you own 100 shares at market price of $2, then after the split, you would have 50 shares worth $4. So, the total value of your investment will not be changed. It is just an accounting issue to make the stock meeting listing requirement. In fact, the company filing with the SEC clearly indicated the purpose of 2:1 reverse split is for NASDAQ listing requirement. A relevant part of the filing follows:
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF OUR COMMON STOCK AT A
RATIO OF 2:1
On January 15, 2009, our Board of Directors unanimously approved and recommended that the stockholders approve, and on the Record Date, the Majority Stockholders approved, an amendment to the Certificate of Incorporation to effect a reverse stock split of our common stock. The Board of Directors determined that by reducing the number of shares of our common stock from 29,200,304 to approximately 14,600,152 shares.
The reverse stock split, when implemented, will not change the par value of our common stock. Except for any changes as a result of the treatment of fractional shares, each stockholder who owns two or more shares will hold the same percentage of common stock outstanding immediately following the reverse stock split as such stockholder did immediately prior to the reverse stock split.
The reverse stock split is conducted hereafter for the purpose of listing the Company's commons tock on the NASDAQ Stock Market in conformance with the listing requirements. (Emphasis added.)
Again, if you are a long-term investor, I would take this lower price opportunity to buy more.